By Jordi Cabré
One could ask why some companies are successful and others are not, or why some have short-lived success and others maintain it over time.
The answer is as simple as it is hard to believe. We have been taught to see companies through measurable results: the balance sheet and the income statement. They really tell us little of present day or future utility.
As an example, looking at the banking and financial system as a whole: What is supposed to be its useful contribution to society? Their job is to manage money acting as an intermediary between those who save and investors, and borrowers seeking funding. This activity adds useful value for society as a whole, providing a solution to those who want to lend their money and those seeking financial support, employees, their managers and the bank itself. This is part of an equilibrium in which everyone gets something of value and all parts win.
The bank should analyze the risks in order to make good use of the money entrusted to it, giving honest service to those seeking financial support and those who entrust their money to them. One should seek the best for everyone without trying to optimize one party over the other. The money entrusted by depositors is lent to borrowers who in return pay interest that pays both, the depositors and the management of the bank.
What has happened in recent years? Many banks (and investors) have focused in optimizing benefits, for themselves, in the short-term. They have taken risks to detriment of their depositors. They have stopped financing businesses and individual consumers with a “reasonable” rate, to let money flow into speculative products with promised high return. Regular customers seeking funds to invest in their businesses have seen how this money is no longer available to them. Building speculation and high-risk financial “products” promised a faster ROI, and a high profit, but where is the value here?
Moreover, in some cases, non-professional political managers have channeled money to projects of political “friends” in a game of political patronage; opportunistic, sometimes legal, but always short of professionalism and ethical sense. Through the money of their depositors, they have appointed directors and presidents to finger, not for their aptitudes and qualities, but in terms of political and tactical balance. If you need to increase your profits you can get more money, by buying other financial institutions with the same speculative focus.
Clearly these companies/banks have played outside the area that return a socially useful value. Is speculation a social value? A certain finance minister even tried to say it was. And so it goes…
Has bank management, in recent years, provided socially useful value? (There are always exceptions, but in general, have they?) Did they contribute to the overall economy, the one that includes companies and families? The answer is, obviously, no. We have lost the balance between the different actors in favor of quick profit and political control, and what is remarkable, is this has been global.
A company can improve profits in the short term, but if it doesn’t create socially useful value, it produces an imbalance in the system, which sooner or later will return with a negative impact involving against the entire system.
Only companies that add socially useful value will survive in the long run. The others are always a flash in the pan, here today, gone tomorrow. But they leave great damage behind them.
Slower growth is a necessary part of the business cycle. They are painful, but make a stronger society, eliminating marginal firms, those that can not deliver value, or can not find a way to adapt and continue to improve. This cleansing and purification paves the way for the next cycle of growth and development. But manipulating the upward trend, magnifies the downward, and whatever gains are made beyond what the natural variation in the cycle would allow, will be taken away forcefully when, inevitably, the tampered cycle crashes. We have been seeing it in the last few decades, over and over again.
Saving companies artificially, is an invitation to inefficiency, a penalty to those who do good and it is antisocial.
The bailout requested by Spain to the EU is detrimental to the Spanish economy and has no other purpose than to try to maintain control by those who have served society so badly in recent years, both Inside and outside Spain. The bailout is basically, an exercise to support German banks who lent without assessing the risks; an exercise in political cronyism that is inept and inefficient at the expense of people, their families, entrepreneurs, and the competent companies–those that understand that their job is to create value for society. The good news in all of this is that there are more of them than we know, despite the media, and the pain inflicted upon them by the shenanigans of “others.”